Q1 2021 Matrix Service Co Earnings Call
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Ladies and gentlemen, please standby your matrix service Company conference call will begin momentarily once again, ladies and gentlemen, thank you for your patience and please standby.
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Ladies and gentlemen, thank you for standing by and welcome to the Matrix Service Company first quarter fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to one of your speakers today Mr. Kelly Smith. Please go ahead.
Thank you good morning, and welcome to Matrix Service Company first quarter fiscal 2000 2021 earnings call.
It depends on today's call will include John Hewitt, President and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief Financial Officer.
Presentation materials will be referring to during the webcast today can be found on dairy Dan presentation on the Investor Relations section of Matrix Service company Dot com the.
Before we begin please let me remind you that on today's call. The company may make various remarks about future expectations.
And prospects for matrix service company that constitute forward looking statements.
The private Securities Litigation Reform Act 1995.
Actual results may differ materially from those indicated by these forward looking statements as a result of various factors.
Letting that was discussed in our annual report on form 10-K for our fiscal year ended June Thirtyth 2020, and in subsequent filings made by the company with the FCC.
To the extent the company utilizes non-GAAP measures reconciliations will be provided in various press releases periodic SEC filings and on the company's website I will now turn the call up your John Hewitt, President and CEO of Matrix Service company.
Thank you Kelly good morning, everyone and thank you for joining us at matrix, we are first and foremost a people business and as such everything we do begins and ends with a focus on health and safety you bought these and everyone within our sphere of influence where engineers design or appliance infrastructure to the technology and other project elements.
We procure through construction commissioning and maintenance in our offices are project sites and even while we're away from work we work hard to put health and safety front and center to ensure that no one gets hurt.
We know achieving zero incident safety performance.
It's possible.
In the first quarter of fiscal 2021, even with the burden of added protocols related to COVID-19, our employees have remained focused and through their strong performance. We completed the quarter with a total recordable incident rate of zero I'd like to thank and congratulate our employees for watching out for one another and achieving this import.
Goal.
Turning now to our first quarter discussion. The pandemic has continued to impact many of our clients, especially those in the energy industry.
Managing through low product demand and Richard health and safety protocols as well as political uncertainty all of which has resulted in delayed and reduced spending priorities.
In spite of reduced revenue volumes, our project execution that consolidated direct margins have been very strong overall.
Overall bidding opportunities are improving and our project opportunity funnel is returning to normal however client decision, making in this environment may affect the timing of awards and starts it is our expectations that bookings and revenue will improve as we move into the second half of this fiscal year.
This improvement in business conditions, combined with our restructuring continuing cost reduction efforts position us to deliver better results.
We remain focused on safety, what didn't work and executing our backlog, we will keep a strong balance sheet through controlling costs minimizing capital expenditures, managing cash flow and maintain minimal or no debt.
As is typical in our business a revenue shortfall can create under recovery of construction overhead costs.
Construction overhead costs include estimating and proposal resources.
Operations staff, such as project managers construction managers feel cost an accounting personnel quality control safety company owned equipment insurance and divisional and site facilities.
These resources are critical to bidding and winning work fulfilling our commitments for new work existing backlog backlog in normal day to day activities.
Finding the right balance between the appropriate level of construction overhead and against the opportunities and their timing and into market is a continuous challenge, particularly since certain costs such as equipment fleet. So these infrastructure inch or insurance premiums for example are more difficult to shed rapid.
If opportunities do not materialize.
Further we must ensure that we have the skill and expertise to provide high quality service to our clients. As ultimately is this resource our people they rely on to deliver safe quality project work.
As you are aware during the latter part of fiscal 2020, we reduced construction overhead costs based on our view of the business and future revenue opportunities in the market we.
We did so based on our assessment of the market impact from the crude oil price war between Saudi Arabia and Russia.
The uncertainty brought on by the global pandemic and the presidential election cycle.
However, given the extended nature of the pandemic and the severe impact on energy and industrial clients as well as the global economy in general, which nobody fully anticipated the revenue available to us this quarter was even lower than we assessed.
In such instances when revenue volumes are not as expected there will be quarters, where we do not achieve complete absorption of construction overhead costs of course, the opposite is true when revenue volumes exceed our expectations in todays unique and uncertain market better visibility into revenue volumes beyond our contracted work is.
Critical to our efforts to find the right balance between cost and opportunity.
We're continuing to adjust our cost structure as we gain greater visibility into the timing of awards and starts for the balance of the fiscal year.
The lower spending by our clients across the segments. We serve has been indicative of the extremely challenging market conditions created by the global pandemic, they face, including reduced energy demand minimal GDP growth and uncertainty related to the us presidential election, having.
Having said that while our energy and industrial clients have in some cases delayed capital projects and spread maintenance expenditures over longer periods. We do have significant near term opportunities. While this may not materially impact our second quarter results New awards and project starts will provide better visibility and volumes.
An overhead recovery for the balance of the fiscal year.
Despite the challenges we face in this current environment. Our overall cost structure has been materially reduced as compared to the prior year. As a result, we are confident in our ability to exit this period as a stronger company. We're also confident in the long term opportunities we have in the markets, we serve and in our ability to capitalize on those opportunities.
Yes.
Through our subsidiaries matrix Pdm engineering matrix service, Inc. and matrix and I see you are designed to execute both small and large scale projects across diverse end markets.
Our construction subsidiaries metric servicing and matrix and a c. operate under a double breasted structure, which allows us to provide either union or non union construction project services. This separation in organizational structure is a strategic advantage for us and is critical to our success and how we approach the markets.
And our ability to serve our clients across all of their geographies.
Matrix, Pdm engineering legacy and energy and industrial engineering, including more highly complex infrastructure, such as cryogenic storage and thermal vacuum chambers reaches as far back as the 19 sixties matrix Pdm not only supports our two construction subsidiaries, but also works independently to provide FPL and.
Seed and engineering led expertise to clients worldwide. Several matrix Pdm engineering employees served in leadership and other positions with key industry associations to set the standards for engineering and construction, including the American Petroleum Institute, The American concrete Institute and the construction industry Institute.
Operating our engineering subsidiary as a standalone entity is a strategic approach that allows matrix pdm engineering to support construction business and union and nonunion environments as well as execute projects with other partners, where their expertise aligns with a client's specific execution desires.
Collectively this structure enables us to pursue broader opportunities and service our clients with a full strength of the enterprise across North America and in select International markets. For example, LNG peak shaving space with a matrix brand as a market leader our ability to team our matrix Pdm cryogenic price.
Assess and terminal design expertise with either of our construction entities allows us to provide a single point solution across the entire geography of North America and elsewhere.
The identification and development of these opportunities for the enterprise will provide strong organic growth the business not only in the LNG peak shaving market, but also other forms of renewable energy work.
Turning now to our markets and services and overall outlook. This quarter represents the first quarter, where results are reported under our new reporting segmentation. As a reminder, this segmentation is designed to provide greater perspective into existing and new end markets, our strategic growth areas and to better represent our long term vision.
We believe there are significant long term opportunities across each of our operating segments.
In the near term uncertainty from global energy markets.
Economic effects from the pandemic health and safety of our clients employees and political outcomes of the elections, just hell have all led to delayed and reduced spending in some of our markets. These market conditions have been particularly impactful in crude storage terminals and refinery work and were further impacted by sequential hurricanes across the Gulf.
Most.
Clean energy and natural gas liquids infrastructure request for proposals, including LNG hydrogen and Ngls, our robust utility spending in our core markets is increasing.
Mineral work is strengthening with commodity pricing and aerospace project opportunities remained strong across.
Our project pipeline includes over 8 billion and projects across all three segments 4 billion of which have anticipated award dates in fiscal 2021, excluding day to day maintenance and small project award activity. This represents an opportunity pipeline approaching normal volumes.
We believe that many of the larger infrastructure projects will move forward with the majority of these potential awards occurring in the third and fourth quarter fiscal 2021.
We are expecting second quarter awards in the utility and power infrastructure and process and industrial facilities that have the potential to return on book to Bill above one.
In our utility and power infrastructure segment, we continue to benefit from our industry, leading position, providing EPC services for utility grade LNG peak shaving and related infrastructure. We currently have several LNG peak shaving or liquefaction facilities and our project opportunity pipeline that we expect to bid over the next six months.
And power delivery, our improved performance and strength in business development structure are resulting in increased activities as we continue to grow this part of the business.
Spending on upgrades in power generation has slowed however, while larger build outs of gas fired power plants may be limited, we are seeing opportunity for smaller power peak shaving projects.
In the near term we are expecting continued backlog growth in this segment.
In process and industrial facilities, while the award of large scale cryogenic natural gas processing facilities has slowed as a result of the current market environment. We are penetrating parts of the gas market.
Im not traditionally had a significant presence for example, our engineering teams are currently responding to a number of opportunities for smaller projects such as compressor stations.
We're also seeing a marked increase in capital project opportunities with our mining and minerals clients as demand for precious industrial and rare Earth minerals improve some of these opportunities are in response to us focus on ensuring secure and reliable supplies of critical minerals, which among other things are vital to renewable energy infrastructure.
Sure, including solar wind and batteries as well as electric vehicles and other consumer goods.
Other opportunities, which are in various stages of the proposal and award cycle. Other resolve a gold prices, which are hovering near an all time high as well as copper prices, which have rebounded.
Existing refinery maintenance accounts are beginning to return to more normal levels and we are seeing increased opportunities for nested maintenance services as refiners continue to look for strategies to trim operating costs were also seeing additional bidding activity as refiners take advantage of incentives to increase production of Biofuels major turnaround spending cuts.
We used to be delayed.
We also continue to benefit from opportunities in other markets accounted for in this segment for example.
Aerospace where matrix is considered as a leader in the SC of thermal vacuum chambers as we near completion of our work on the thermal vacuum chamber for Lockheed Martin at their New Gateway Center in Littleton, Colorado. We also actively we are also actively involved in the development of multiple vacuum chambers for use in aerospace testing and other scientific application.
Yes.
One such engineering construction project, which has been awarded to matrix Pdm Engineering is for John Hopkins Applied Physics Laboratory, and Laurel, Maryland, This chamber, which relies on Dynavax integration and technology is in support of their NASA sponsored project to send dragonfly rotorcraft Lander expedition to Saturn's largest moon tighten.
As part of that Nasa's New Frontier program.
Finally, as a result of our strategic focus on the chemical and petrochemical space, we're seeing a higher number of inquiries and request for proposals due to continued demand for their products specifically.
Our pipeline includes multiple opportunities to establish master service agreements with tier one chemical and petrochemical clients, who are seeking single point NFC solutions for small to mid scale projects with qualified service providers that are more responsive to their needs rather than the large traditional PC providers.
In our storage solutions segment the opportunities for continued growth in the demand for cleaner energy sources like LNG and hydrogen are significant timing of these projects are mixed the award cycle should strengthen the back half of our fiscal year as we have mentioned before our subsidiary matrix service has been selected for Eagle.
LNG Jacksonville, LNG export facility, which we announced in early 2020, while this project is not yet in backlog that continues to move forward and we anticipate beginning engineering in this fiscal year in.
In the Caribbean, we are receiving multiple inquiries for long term maintenance and hurricane repair projects of terminal owners. Additionally, with low stable natural gas prices strong hedge interest also exists in this geographic area for LNG re gasification facilities that will allow utilities as well as commercial and industrial facilities to.
Generate their own power from LNG delivered an ISO containers from the us.
Elsewhere in North America, several opportunities in crude oil tank and terminal construction maintenance and repair as well as NGL storage are also being pursued.
In summary, it is our expectation that bookings and revenue will improve as we move into the second half of this fiscal year backlog will flatten in the second quarter and start to turn up in the second half of the year and we expect to achieve a consolidated book to bill of greater than one zero by fiscal year end.
As I explained earlier, we've taken numerous steps to rightsize portions of the business to reduce our cost structure and we will continue to manage the appropriate balance between cost and winning and executing our work our restructuring and cost reduction efforts position us to deliver better results as market conditions improve we will keep a strong balance sheet through controlling.
Costs minimize capital expenditures, managing cash flow and maintaining minimal or no debt. This strong balance sheet will provide us flexibility when making capital allocation decisions, including opportunistic share repurchases I'll now turn the call over to Kevin.
Thank you John.
Before I get to the quarter results I want to elaborate on the cost reduction efforts John has just John just discussed.
In the last half of fiscal 2020, the company took steps necessary to reduce our annual overhead cost structure by $45 million or about 11 million on a quarterly basis.
The quarter. We just completed is the first quarter in which those cost reduction efforts for fully in place and the actual reduction in overhead costs was such that was substantially higher than the estimated amount.
DNA in the quarter.
18.1 million as compared to $23.7 million in the first quarter of last year, a realized a reduction of $5.6 million ARPU.
Our construction overhead cost, which.
Which are included in cost of revenue.
Were $10.4 million lower in the first quarter of fiscal 2021 as compared to the first quarter of last year.
This is a total reduction of almost $16 million or 25% on a quarter over quarter basis. These cost reductions include lower variable costs, such as incentive compensation.
In addition to the actions taken in fiscal 2020, we have and will continue to look for opportunities to reduce costs further until we see project awards and revenue volumes recover.
Moving onto the quarterly results.
Consolidated revenue was 183 million for the first quarter of fiscal 2021 compared to 338 million in the same period of the prior fiscal year.
Revenue in all three segments has been impacted by the current market environment.
Project execute execution was strong again this quarter as our operating personnel continue to work effectively in this tough environment.
Consolidated direct gross margin was at the upper end or normal gross margin expectations.
As I just discussed significant cost reductions were realized in the quarter.
However, we still had significant under recovery of construction overhead cost as a result of the lower revenue volume.
While we expect our quarterly revenue run rate to improve we can't say with certainty when and how quickly we returned to pre cobot levels.
Must continue to conserve conservatively manage our cost structure look for additional opportunities for reductions.
But we must do so with a balanced approach based upon our assessment of the project opportunity funnel.
Consolidated gross profit decreased to 14.4 million in the three months ended September Thirtyth 2020.
Compared to $32.5 million in the same period in the prior fiscal year.
Gross margin decreased to 7.9% in the first quarter of fiscal 2021 compared to 9.6% in the same period in fiscal 2020.
As I mentioned earlier, we realized a 23.6% decrease in Michigan a cost as a result of planned cost reductions.
As well as significantly lower incentive compensation corporate cost on fluid within ESG Tonight.
Were $6.9 million in the quarter as compared to $7.8 million in the first quarter last year, a reduction of 12.3%.
Despite the lower cost SGN as a percent of revenue was 9.9% in the quarter.
Yes, you know percent exceeds our target we expect to see it improve as revenue recovers and additional cost reductions are made over the last two years. We have that we have achieved an average SGN a 6.7% of revenue, which is better than the majority of our peers. We will continue to work to optimize our estimated cost structure.
And to leverage that cost structure as we grow revenue with an ultimate goal of achieving an SGN a below 6% of revenue.
As a result of the low revenue volume the company incurred an operating loss of $3.5 million in the first quarter as compared to positive operating income of $8.8 million in the prior year first quarter.
Active tax rate in the quarter was an unusual negative 9.8% as a result of a deferred tax asset adjustment.
We continue to expect a normal effective tax rate of 27%.
For the quarter had a net loss of 3 million or 12 cents per fully diluted share compared to net income of 6.2 million or 22 cents per fully diluted share in the first quarter of the prior year.
Adjusted EBITDA was $1.9 million in the first quarter as compared to $14 million last year.
Our backlog decreased $80 million in the first quarter to $678 million at significant project awards continued to be delayed.
We had $103 million of project awards in the quarter, resulting in a book to Bill of 0.6, as Sean mentioned the strength of the project funnel provides the company an opportunity to return to a book to bill above one as we move through fiscal 2021.
Before I get into segment results, we changed our segment reporting effective at the beginning of the fiscal year.
To assist with understanding the impact of this change the company filed a form 8-K on September Thirtyth, 2020, which provided restated segment quarterly and annual disclosure for fiscal years 2019, and 2020. In addition backlog and project Award information were provided for those.
Same periods.
Let's start with the utility and power infrastructure segment. This that this segment is essentially the former electrical infrastructure segment.
Plus liquefied natural gas utility peak shaving, which was previously included in the old storage solutions segment.
Revenue for the utility and power infrastructure segment was 61 million in the three months ended September Thirtyth 2020, compared to 48 million in the same period last year.
The increase is due to a higher volume of LNG utility peak shaving were partially offset by lower volumes of power delivery and power generation work.
The segment gross margin was 11.4% in fiscal 2021 compared to a negative 0.4% in fiscal 2020.
The fiscal 2021 segment gross margin was positively impacted by strong project execution on peak shaving and power delivery projects.
We are encouraged by our growing market share in LNG peak shaving in results in the power delivery business, which have benefited from our business improvement plan implemented last fiscal year.
We remain focused on increasing volumes and expanding our geographic geographic reach in order to achieve consistent consistent gross margins at these levels operating income was 4.7 million as compared to an operating loss of $2.8 million in the first quarter of last year.
Our process and industrial facility facility segment consist of our former oil gas and chemicals segment as well as work in industries, such as aerospace and mining and minerals that were previously reported in the industrial segment.
Revenue for the process and industrial facility segment was 46 million in the first quarter compared to 155 million in the same period last year.
The decrease is due to our strategic exit from the domestic iron and steel industry.
The third quarter of fiscal 2020, and lower volumes of turnaround refinery maintenance at midstream gas processing work all of which have been negatively impacted by the COVID-19 pandemic.
The segment gross margin was 8% for the three months ended September Thirtyth 2020, compared.
Compared to 8.8% in the same period last year.
Project execution in fiscal 2021 has been strong, but gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead cost.
As a result of the lower revenue volume operating income in the quarter was only 1.1 million as compared to $6.7 million in the prior year first quarter.
The storage in terms and terminal solutions segment consists of the former storage solutions segment minus the LNG peak shaving work, which is now included in the utility utility and power infrastructure segment.
Revenue for the storage and terminal solutions segment was 76 million.
In the first quarter compared to $136 million last year.
The decrease in segment revenue is primarily the result of lower volumes of tank and crude oil terminal capital work and repair and maintenance work.
As a result of over 19 global energy demand and regulatory issues. We continue to experience lower project award activity, which has negatively impacted revenue volume.
Segment gross margin was 5% in the three months ended September Thirtyth 2020, compared to 14.6% last year.
The fiscal 2021 segment gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead cost.
And lower than previously forecast a margin on a crude oil storage terminal project nearing completion.
Storage internal solutions incurred an operating loss of $1.4 million in the quarter compared to operating income of $12.8 million in the prior year first quarter.
Moving to our balance sheet and liquidity at June Thirtyth 2020, the company had a cash balance of 82 million debt of $9 million and liquidity of $134 million during.
During the first quarter the company used $18 million of cash to fund working capital needs that resulted from the timing of milestone billings on cap larger capital projects.
Our approach of maintaining a strong balance sheet and good liquidity has been a consistent and important part of our strategy. This includes operating with a revolving credit facility that is primarily utilized to provide letters of credit for certain project insurance needs and to provide funding of working capital needs.
As the credit facility was scheduled to mature.
And a little over a year the company just completed an extension of the facility to November 2nd 2023. The terms of the updated facility will be disclosed in the form 10-Q to be filed this week we.
We believe the extended credit facility, along with our strong balance sheet provides us with the liquidity we need to both operate in this current environment and to grow the business as the markets recover.
Our capital allocation priorities for fiscal 2021 article on working capital as needed to fund limited capital expenditures, which we expect to be less than 1% of revenue.
And two opportunities to look opportunistically repurchase stock.
While growth through synergistic tuck in acquisitions remain an important part of our long term strategy.
We will not be pursuing any acquisitions until the business environment improves.
In closing first quarter revenue of 183 million and a loss per share of 12 cents were impacted by the COVID-19 endemic the market environment driving those results still exists today.
As John said, we are seeing signs of improvement.
While the timing of the recovery remains uncertain and the second quarter, we will continue to be impacted by this pandemic market.
We are encouraged by the project pipeline, which includes over $8 billion in projects across all three segments.
4 billion of which have anticipated award dates in fiscal 2021 as a result, we expect improved project awards increased revenues and improved operating operating results in the second half of the fiscal year.
I will now turn the call back to John.
Thank you Kevin the challenge of the pandemic and its effect on global energy demand and macroeconomics and certainly not been kind to our business. These challenges have tested us I want to assure you that their impact will pass and we will emerge as an even stronger company.
Proactive and successful at protecting the health and safety of almost dive a resource our employees and the people who work for our business partners and clients. We also continue to proactively review and adjust our cost structure in order to find the right balance between the available market, where we see the opportunities lining up across our operating segments.
As a time of transition for our markets Society, and our business and we are making that transition. It remains our goal to provide safe high quality services growth company be thoughtful and conservative with our balance sheet drive better and more consistent financial outcomes and create value for all of our stakeholders. These steps have taken these steps we have taken over.
The past few years are instrumental to achieving these objectives among them have been expanding our engineering capability with the acquisition of Houston interests, which among other things accelerated our full tank and terminal growth extended services into midstream natural gas processing markets as well as the chemical and petrochemical markets modifying our.
Power generation.
Auction to package work, thus minimizing risk and increasing margins exiting the domestic iron and steel market to improve our consolidated financial performance safety outcomes working capital demand and portfolio cyclicality.
Investing in our people and systems to ensure we are offering best in class people and to better focus business development efforts of the enterprise to the growth areas of the company.
There is no more evident than this in our commanding position in small to mid scale LNG peak shaving export and bunkering facilities and the growth opportunities it presents for us.
Re segmenting the company to utility power infrastructure process, and industrial facilities and storage and terminal solutions to provide a clear picture of our direction.
Reorganizing our power delivery business to improve performance and prepare for growth and expansion as it becomes a larger element of our business.
Extending our bank agreement to provide among other things more flexibility for capital allocation as we work to balance the needs for working capital letters of credit Capex and share repurchases in these uncertain times.
Modified elements of the organizational design and structure for efficiency, while reducing costs to reflect not only the short term challenges brought on by the pandemic, but also to prepare the business for better outcomes with a strong opportunity pipeline, we see in front of US. This process continues today.
We are confronting the pandemic instigated challenges as well as other critical business issues, including diversity equity and inclusion and sustainability with strength and are clearly focused on the opportunities in front of us in closing I want to thank all of our stakeholders for your continued commitment and support I will now open the call up for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your touched on telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute once your question has been stable.
Our first question comes from the line of John Franzreb with Sidoti and company. Your line is open. Please go ahead.
Good morning, gentlemen.
Good morning, good morning.
Let's start with the.
The quarterly results first and foremost a couple of quick questions there how.
How much of the revenue decrease year over year and represents the exiting of the steel and iron business.
So our revenues were down about 155 million quarter over quarter about half of that is.
Related to our exit of iron and steel with a larger capital projects going on in that.
Piece of the business in the first quarter of last year. The other half is related to the current market. We're in.
Okay.
Okay, and the utility business seems to be operating at the higher end of your gross margin bandwidth.
Is there anything in particular that we should note the other whitestone so well.
Well, it's a combination of things so the picture.
Peak shaving projects, we've really got a good reputation there for that type of work and we've moved that into that segment now that we've sold the work we're doing there's is producing good.
Good reasonable margin.
And secondly, the power delivery.
Business unit, we talked last year last couple of calls about.
What we're doing there to try to improve operating performance and so this is the second quarter in a row that that piece of the business as as seen good margin. So we're good we're continuing to.
See some benefit from the changes we put into the business.
For for that segment, we need to get the volumes up.
To make sure that we can consistently see that type of margin.
Okay.
On the quarter, you realized 16 million in cost savings relative to your run rate of about 11 million.
And you mentioned in your commentary additional cost cuts.
How should I think about that $60 million going forward is that a one time.
Only kind of a fair or or how should we think about that.
We're going to do our best to keep it at that level.
Or or lower and looking for other opportunities until.
Until we see.
Backlog awards start to hit revenue volumes.
Increasing so we have more confidence going forward of the cuts we made last year were pretty significant.
But I think our operations groups and our support groups are continuing to have good do a good job of.
Looking for opportunities to further reduce costs and another impact on the the savings is.
In an environment, where operating results are good you're not seen incentive compensations.
So thats lower this year.
And I'll squeeze one last question before I get back in queue.
Said that $8 billion.
Opportunity pipeline for being you think could be realized.
Awarded in the third and fourth quarter.
John what do you think is good.
Good, particularly actually what all of it but what do you think would be a good target of that three to 4 billion.
Yes that that pipeline is that 8 billion extends out probably 12 to over 12 months.
Abbas Abbas.
Half of that are projects that we have handicap Dick will that that could be awarded between now and the end of June.
21, so within within our fiscal year and our hit rate is usually anywhere between 20% to 30% on on projects.
Usually the larger the project to lower the.
The smaller the amount of competitors in those projects and so that gives us an opportunity to serve to amp up that hit rate a little bit but.
Thinking about 20% to 30% is probably pretty reasonable on average.
And that and that the other thing to think about too is that $4 billion is really.
Hi, more along the lines of kind of larger capital projects and when I say larger like $25 million and up.
And but theres the day to day stuff that kind of runs through the company some of it its backlog some of it never hits backlog as it is in and out.
In the quarter and so when you see the award cycle in Q1 of around 100 million. That's now in this environment is kind of that normal sort out what I call Ham and egg in our way through the Ham Megan our way through a quarter picking up those smaller maintenance and.
And construction projects.
Got it got it okay, guys I'll get back in queue. Thank you.
Yeah.
Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
Our next question comes from the line of Welles Harrison with Davidson. Your line is open. Please go ahead.
Good morning, John and Kevin.
Well.
Kevin regarding the $18 million cash outflow this quarter.
All of that attributable to the milestone billings and then how much of that can we expect to come back throughout the fiscal year.
Yes. So if you look at our working capital accounts, the net amount of the.
Change in the quarter was I think 18.4 million. So that is the change in cash in the quarter.
I would expect based upon the jobs that those milestone billings relate to that we would see that come back in the second and third quarters.
Okay, Great Thats helpful. Thank you and then.
Looking at the process and industrial segment as you're exiting the domestic steel and iron business do you plan to reallocate.
The resources freed up from that within the process and industrial segment or other segments of the business.
The majority of those Rhys some some of those resources.
Reallocated to other project opportunities.
A large percentage of that of those resources have been let go.
Understood Okay.
Okay. Thank you and.
And then lastly, you.
You mentioned that some of the SDMA benefit came from lower incentive based comp Im just wondering at at the manager level of your different operation how are those managers incentivizes, it based off of revenue or profit or something different.
They are fundamentally it's off of.
Operating income.
Okay.
I'll get back in queue. Thank you.
Okay.
Thank you.
We do have a follow up question from the line of John Franzreb with Sidoti and company. Your line is open. Please go ahead.
Yes, I just want to talk about the.
We said that the credit agreement.
Can you talk a little bit about the board's appetite for repurchasing stock.
It's certainly hopefully can get much lower but what are the thoughts what's the thought process there.
That'd be helpful.
Yes so.
That was something we tried to achieve with the credit facility is to give ourselves the flexibility to repurchase.
Stock so.
Instructions based on operating income that prevent you from buying back stock.
There are there are not wave.
There was previously some restrictions under the old facility or primary purpose for the.
And that was to extend the facility.
But we also.
Have altered.
Arcuation of a couple of those covenants so that.
We have the flexibility to not even include share repurchases in the fixed charge coverage ratio under certain circumstances and so it gives us the flexibility we need so we decided tomorrow, it's time for us to start buying stock we can do it.
Okay. Okay. Thanks, Kevin that's helpful. Okay guys.
<unk>, thanks for taking my questions.
Thank you and I'm showing no further questions at this time and I would like to turn the conference back over I can Mister <unk> for any further remarks.
Thank you everybody for attending a conference call today.
Everybody to stay safe.
Safe and healthy in this environment.
Thank you very much.
Thank you.
Ladies and gentlemen, thank you for participating in today's conference that does conclude the program and you may I'll disconnect everyone has a great day.
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